Why PriceSmart, Inc. (NASDAQ:PSMT) Could Be Worth Watching

While PriceSmart, Inc. (NASDAQ:PSMT) might not have the largest market cap around , it saw a decent share price growth of 13% on the NASDAQGS over the last few months. The company is inching closer to its yearly highs following the recent share price climb. As a well-established company, which tends to be well-covered by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine PriceSmart’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for PriceSmart

Is PriceSmart Still Cheap?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 21.53x is currently trading slightly above its industry peers’ ratio of 20.61x, which means if you buy PriceSmart today, you’d be paying a relatively reasonable price for it. And if you believe that PriceSmart should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, PriceSmart’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What kind of growth will PriceSmart generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. PriceSmart's earnings over the next few years are expected to increase by 47%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in PSMT’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at PSMT? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on PSMT, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PSMT, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 1 warning sign for PriceSmart you should know about.

If you are no longer interested in PriceSmart, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.